1. Technical Field
The present invention relates to demand aggregation, and more particularly, to a method and system for conducting a reverse auction using an interactive demand management system.
2. Background Information
In the past, it has been difficult for purchasers to leverage the buying power of several unrelated entities in an attempt to get preferred terms from suppliers. For example, people who wish to travel are often forced to purchase airline tickets at a rate determined by the airline, with little room to negotiate a better rate. People traveling for recreational purposes may have more room to negotiate or find a better deal because their plans may not be as structured as those of a business traveler. But business travelers often have less flexibility as to the time of a trip, giving suppliers leverage over them and little incentive to lower prices. Organizations (such as corporations) which spend large amounts of money on travel have an advantage as they may be able to leverage their high volume and obtain a volume discount. However, such an option is often not available to smaller organizations. For example, organizations with large travel expenditures, e.g., more than $10 million per year, are able to obtain discounts of 15 to 40%, while small-medium enterprises lack the clout to secure such discounts.
Current systems which attempt to optimize travelling costs may utilize a travel manager overseeing one corporation to potentially notice a group (or “lot”) of travelers with similar demand—e.g., each member of the lot may be preparing to attend the same conference. If the travel manager is made aware of this fact before reservations are made, the travel manager may be able to contact suppliers to negotiate a group discount. Such group discount negotiations can occur across multiple corporations such as when a conference/show organizer negotiates show rates at convention hotels. “Pre-trip” software also exists that is used by travel managers to determine where savings opportunities exist. However, this typically involves catching somebody traveling “out-of-policy” before the person actually travels. It can also involve organizing a group and then ad-hoc negotiating a special fare/rate or discovering a group of key executives on the same flight and rebooking some to de-risk the accident exposure.
In industries where buyers are fragmented and suppliers are both consolidated and well-invested in yield management systems, auctions represent an opportunity to aggregate demand and create price-makers out of price-takers. In other words, the pricing of goods and services could be more influenced by the users rather than solely determined by the suppliers. With regard to travel in the business context, however, small to medium size companies have difficulty in aggregating demand for several reasons. For example, because of the relatively small number of travelers from small organizations planning a particular trip, those businesses have less leverage in negotiations than the relatively few number of carriers, which may be unwilling to negotiate contracts across unrelated companies.
In certain industries, on web sites such as mercata.com, suppliers bid on contracts to provide goods or services to others. However, due to the low volume and the lack of aggregation in the travel industry, it has been difficult for the system to adapt to the travel industry and other industries. Mercata.com used another model that achieved much initial success. The model contained a “PowerBuy” system in which the unit price of an item would become lower when more users expressed interest in the item. This model also relied on pre-negotiated pricing to result in lowered prices for consumers and is thus not a true auction.
Moreover, the field of auctions on the Internet has evolved rapidly in the past few years. For example, Priceline.com uses a model where users bid a certain amount for an airline ticket, and various airlines can accept the bid. While this system appears to be a true auction, it typically operates through the use of pre-negotiated inventory discounts: the system scans a list of pre-negotiated prices and determines if the requested price has been matched.
Mobshop.com expanded upon the model of Mercata.com by aggregating across multiple affiliate sites. For example, a typical organization may purchase many computer monitors in a year, however, the purchasing may occur over a variety of different divisions of the organization: whereas each of 10 sites could include 100 buyers, together they represent a single “lot” of 1000 buyers.
FreeMarkets utilized an “open cry” reverse auction to drive pricing down among multiple competing suppliers of a given product or service. The typical pre-negotiation present in the FreeMarket system is whether a supplier will participate. In other words, prices bid by suppliers are determined in “real-time.” However, FreeMarkets only allows negotiations on price alone; the other terms for the provision of the goods or services are not negotiable.
However, with the low volume and the lack of aggregation, the above-described systems are difficult to adapt to the travel industry and other similar industries. Furthermore, the key to forcing suppliers to negotiate with consumers is to have a large number of products or services available for bidding at one time by suppliers. Such a situation is not sufficiently present in the travel industry, thus, individual travelers may not have the ability to negotiate. Therefore, there is a need for a method and system to aggregate demand in certain fields.